Answer 2

If you plan to base your future operating
income on current operating income, it stands to reason that
you want to remove any items that are transitional (one time
charges or income) or cancel out over time (exchange rate or
pension fund gains or losses). It is a tougher call as to whether
you should smooth out operating income by using the average
income over time. For some firms, such as commodity companies,
it clearly makes sense given the ups and downs in commodity
prices over time. For other firms, especially those that are
facing long term structural or operating problems, you should
not replace current depressed earnings with an average earnings
over time. Instead, you should recognize that the earnings
improvement, if it occurs, will happen gradually over time
and reflect that in your valuation by a gradual improvement
in operating margins.